850,000 Android devices are activated every day, Google's search business continues to rise in profits

Google Inc. (GOOG) isn't number one in the tech industry in profit (that would be Apple, Inc. (AAPL) -- $13.06B USD in Q1 2012) or in market cap (again, Apple -- $578B USD). But Google is still a giant in its own right, ruler of all things search, and owner of the most used smartphone operating system in the world, Android.

I. Core Earnings

Google just reported its fiscal Q1 results and everything is looking fine and dandy.

Profit rose to $2.89B USD (non-GAAP; GAAP: $2.65B USD) vs. $1.80B USD (non-GAAP) a year ago. The earnings were more than 4 percent better than the analyst consensus. Net revenue rose to $10.65B USD, up from $8.58B USD in Q1 2011. That's a rise of 24 percent.

A major portion of Google's revenue goes to so-called "traffic acquisition costs", which include deals with top browser makers, etc., which funnel search traffic to Google's homepage, but also cost it money. These costs rose from $2.04B USD to $2.51B USD on a year-to-year basis (up 26 percent). However, paid clicks rose 39 percent, indicating Google is getting more bang for its buck and not simply buying more hits.

The company declined to break down revenue by a per-product basis, other than for YouTube and Search.

II. Vital Signs

Quick vital signs on core Google offerings:

Chrome: 200 million users (a figure that appears not to include Android Chrome)

The software firm ended the quarter with just over 33,000 employees worldwide. The company has $49.3B USD of cash on hand (about half of Apple's war-chest).

Google stock, currently hovering around $625 USD, will be offered a split of 2-to-1. However, the new shares will be non-voting shares, something that may turn off large investors. Thus liquidity is improved, but control is reduced -- which may give institutional investors mixed reactions. Indeed, Google's stock was down 3.75 percent today, despite the strong performance.

III. Dodging Those Pesky Taxes

The company also announced that for the first quarter of 2012, it is now paying an effective tax rate of 18 percent [source], above the average (~12 percent) for Fortune500 companies, but about half the supposed tax rate set forth by basic corporate tax law (35 percent of earnings), the rate small-to-midsize business are typically forced to pay.

Google in recent public comments, defended sourcing its regional head-quarters in low-tax regions like Ireland, Luxembourg, and the Caribbean as a way of masking its corporate earnings.

The company esentially said that it had to dodge taxes as a responsibility to shareholders, commenting:

We have an obligation to our shareholders to set up a tax-efficient structure, and our present structure is compliant with the tax rules in all the countries where we operate.

To its credit, Google was one of the only companies to effective own up to this practice in a public comment.

The U.S. has a complex tax code, where top corporations and wealthy individuals typically pay a lower effective income tax than small-to-midsize businesses or the middle-class. This system is made confusing by the fact that the wealthy interests appear to be taxed more on paper -- among the highest taxes in the world in fact. The "discounts" are only added at tax time.

Google spent $9M USD in lobbying in 2011 [source]. And its political action committee (PAC) chipped in another $1M USD, largely party-agnostic [source]. Google gave $814,000 USD to U.S. President Barack Obama in his last campaign [source] and $165,000 so far this campaign [source]. Obama was the first presidential candidate since records became available to be heavily funded by Google.

Today U.S. politicians are much like NASCAR drivers in that they spend much time thanking their sponsors. Those thanks come in the way of tax loopholes, tax holidays, judicial favoritism, and other perks. A recent University of KansasSchool of Businessstudy [PDF] found that $1 given to a federal politician was worth $243 USD of tax breaks, if you contributed over $1M USD.

The cost of these bipartisan concessions come in the form of America's $15T USD national debt and tax barriers that discourage smaller individuals and competitors from rising in affluence, thanks to higher taxation.

IV. The Unknowns

What was not discussed during the earnings call? Notably, app statistics or Android revenue/profit. Speculation is high about exactly how profitable or non-profitable Android is. For now all Google would say was to call the platform a "gamble" and suggest that it is thus far paying off in activations (market share).

Many in the government of China have advocated a model in which foreign businesses must increasingly surrender their intellectual property in order to sell to Chinese users (note that manufacturers not selling to the Chinese market would be exempt -- for now). While legislation to that end stalled on the grounds of outrage from the U.S., China appears to be still encouraging a black market of IP theft of American firms.

Google, a prominent victim of such attacks and code theft, has spoken out against the company's apparent promotion of the practice. China's top state-run newspaper responded with a threatening commentary in a top interview, suggesting that Google should either put up with the abuse or get out.

China may be using the Motorola deal as a bargaining chip to try to convince Google that the correct answer is "put up with the abuse".

Other than during declared wars with very very low rates, the USA went 140 years with no income tax. The fact that "times have changed" is irrelevant, we still do not need an income tax. Time have changed because of the income tax (and debt). I agree with the above poster, the 16th Amendment was the single worst addition to the Constitution ever ratified.

"It looks like the iPhone 4 might be their Vista, and I'm okay with that." -- Microsoft COO Kevin Turner